Niharika Tripathi, Head of Products and Research for Wealthy.in, shares her views on the Indian stock market outlook, key risks, and sectors to watch. With India's debt-to-GDP ratio at around 81%, the government's fiscal space for infrastructure spending is limited. A weaker rupee, spike in crude oil prices, and lower tax collections are also potential risks that can impact the equity market.
Indian equities are in a late-cycle phase, with headline indices near highs and the broader macro and earnings setup remaining supportive. However, valuations are no longer cheap, and incremental triggers matter. Large-caps are consolidating near highs, while mid/small caps have seen sharper corrections followed by selective rebounds.
The most important driver for the market will be earnings. A broader-based improvement in profitability beyond a handful of large financials and industrials is expected. Policy and liquidity conditions will also be influential. A final rate cut by the RBI, consistent domestic SIP flows, and any revival of FII buying into India can extend the rally despite rich valuations.
The Nifty 50 has reached a new all-time high and is now consolidating. However, multiple broader market stocks are down up to 40%-50% from highs. 2025 is shaping up as the first losing or flat year for Indian equities since the Covid period, due to FII outflows and global shocks. Valuations are comparatively closer to long-term averages, and a modest earnings growth can lead to a rally in the Nifty 50 index.
India's elevated debt-to-GDP ratio, weaker rupee, spike in crude oil prices, and lower tax collections are potential domestic risks for the market. These factors can affect investor sentiment and increase the risk of further FII outflows.
To navigate the risks, a defensive equity strategy can be adopted, emphasizing diversification into domestic Indian large-cap stocks, quality sectors less exposed to global trade, and reduced international allocations. Major allocations can be directed to quality large-cap, flexi-cap, multi-cap, and multi-asset funds to keep overall portfolio volatility in check.
Domestic-demand-linked sectors like healthcare, banking and financial, insurance, and digital/IT services look relatively attractive. On the other hand, richly priced cyclicals like realty, export-sensitive sectors, and highly leveraged plays appear riskier. Sectors like aviation and some transport names are already showing stress from cost inflation and operational issues.
Defensive and quality styles are best suited to the current Indian market conditions, amid volatility from FII outflows, profit booking, and uncertainty surrounding US Fed decisions and trade deals. A blend of defensive and quality stocks reduces the downside risk, while adding some value stocks supports long-term portfolios.
Download the TradeKaizen app to practice F&O trading with real-time market data anytime, anywhere.
Get it on Google PlayConnect with fellow traders, share strategies, and improve your trading skills in our Telegram group.
Join Telegram